Tariff Structure: How Much Businesses Will Have to Pay for Rail Freight and Why
9 January 15:54
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Ukrainian manufacturers, who are already struggling with high electricity prices, are facing an increasingly pressing reality stemming from the introduction of higher rail freight rates. Meanwhile, Ukrzaliznytsia, mired in debt and losses, is looking for ways to financially alleviate its own problems. "Komersant Ukrainian"
investigated whether it is possible to fairly balance all these risks and needs.
The situation surrounding the increase in rail freight tariffs increasingly resembles a sort of “tariff knot” where the interests of many participants are intertwined. On one side are the cargo owners, who may face additional costs, demanding that the industry-specific nature of their cargo be taken into account and threatening to stop using rail services; on the other is Ukrzaliznytsia itself, which is suffering from debt, unprofitable passenger transport, rising electricity prices, and… declining freight volumes.
Government representatives also have a particular stake in the matter, declaring their intention to fairly reconcile the interests of all parties—at least to the extent that both those who use the railway’s services and Ukrzaliznytsia itself can continue to operate. Especially since it is government officials who must approve the railway workers’ proposals. The fact that the debate over the indexation of Ukrzaliznytsia’s tariffs has been ongoing for over a year can be seen as evidence that reaching a consensus is far from easy.
The Cost of the Increase for Businesses
The previous increase in freight tariffs dates back to June 2022. It was justified by the need to compensate for losses caused by the war. At that time, the Ministry of Infrastructure approved Ukrzaliznytsia’s proposal to raise rail freight tariffs by 70% via an official order. In mid-2024, there was an attempt to raise rates by unifying tariff classes. However, protests from business representatives at the time prevented this idea from being implemented.
The current attempt involves raising rates in two stages: first by 27% and then by another 11% six months later. The business community views this rate hike with no enthusiasm whatsoever.
The arguments against are clear: rising logistics costs, general inflation, increased production costs, loss of competitiveness, and, as a result, a decline in production and export volumes. In addition, there is a potential shift toward road freight transport, which would accelerate road deterioration.
But these general arguments against the measure also have more specific dimensions and manifestations. As noted by Iryna Kosse, a leading research fellow at the Institute for Economic Research, the impact of a tariff increase depends on the share of logistics in production costs, the availability of alternatives, and the current state of the market in each industry. According to her, agricultural cargo is more sensitive to seasonality and routes, while, for example, the metallurgical sector depends on export logistics chains and port and border infrastructure.
“Representatives of both sectors claim that rate hikes are tying up working capital at a time when logistics are already expensive due to military risks and attacks on ports. Ingulets GOK has already been completely shut down, while ArcelorMittal Kryvyi Rih is operating only one blast furnace out of three. According to a GMK Center study, the sectors most affected will be metallurgy (down 6.9%) and mining (down 5.3%). The cost of a ton of ore could rise by at least $2–3, and a ton of coal by $5–7, depending on the distance of transport. The agricultural sector expects logistics costs to rise by $3–6 per ton of product, depending on the location of the enterprise. “And, for example, a $5 increase in costs per ton, taking Kernel as an example, makes road transport more profitable over distances of 400–500 kilometers,” notes Iryna Kosse.
According to estimates by the state-owned enterprise “Ukrpromzovnishchexpertiza,” cited in the GMK Center report, a mere 37% increase in freight rates would lead to a reduction in GDP of nearly 100 billion UAH, a loss of foreign exchange earnings amounting to 98 billion UAH, annual losses in budget revenues of over 36 billion UAH, and the elimination of at least 76,000 jobs. If rates are raised by more than 40%, the impact will be even more negative for the entire economy. However, representatives of Ukrzaliznytsia have their own figures and arguments.
The cost of the increase for Ukrzaliznytsia
2025 is already being called the worst year for Ukrzaliznytsia since the start of the full-scale war. 2026 is unlikely to be any better. This year, Ukrzaliznytsia’s budget deficit could exceed 40 billion UAH.
The company also faces significant payments—totaling nearly €800 million—to settle financial obligations from previous years, which amounts to nearly a third of Ukrzaliznytsia’s total revenue.
These figures were cited at the end of last year during “Infrastructure Day,” organized by the European Business Association, by Oleksiy Balesta, Deputy Minister of Community and Territorial Development of Ukraine.
And they were presented as an argument in favor of the need to raise freight transport tariffs. In particular, because freight transport is the main source of revenue for servicing Ukrzaliznytsia’s loan portfolio and investments. But will the rise in freight transportation costs be this silver bullet, considering that Ukrzaliznytsia reports a significant decrease in transportation volumes compared to 2024?
“Over the 12 months of 2025, grain freight volumes amounted to 25,856,400 tons (compared to 2024, freight volumes decreased by 27.3% or 10,847,800 tons),” — Valery Tkachov, Deputy Director of the Department of Transportation Technology and Commercial Operations at JSC “Ukrzaliznytsia,” shared these figures on his Facebook page recently.
Of course, among the reasons cited for the decline in rail grain shipments are the high comparative base—since 2024 saw a record volume of grain shipments due to the opening of the grain corridor—and the negative price dynamics for Ukrainian grain at the end of 2025, and logistical complications in November–December 2025 due to attacks on railway and port infrastructure. But the fact remains that rail freight volumes are declining. And this applies not only to grain.
Iryna Kosse, a leading research fellow at the Institute for Economic Research, continues.
“Ukrzaliznytsia reports that the profitability of the freight segment has plummeted: revenue from freight transport in 2025 amounts to 4–5 billion UAH, compared to 20.4 billion UAH the previous year. The largest decline in 2025 is recorded in coal transportation—a 15% drop due to the destruction of thermal power plants and the proximity of the front line—as well as in grain transportation—due to stabilization following the peak volumes of 2024. A reduction in production across the country will lead to an even smaller freight base. At the same time, freight transportation is the main source of revenue for servicing Ukrzaliznytsia’s loan portfolio and investments. Passenger transportation in 2025 generated over 18.6 billion UAH in losses. “Revenue from freight transportation is physically insufficient to cover passenger losses,” the expert notes.
Moreover, raising fares does not necessarily mean increased revenue, as rising costs could prompt users to abandon rail services and switch to road transport instead.
For example, Anatoliy Amelin, a member of the Supervisory Board of JSC “Ukrzaliznytsia,” recently stated:
“We conducted an internal study that showed that a 20% fare increase would lead to a 19% drop in freight volume.”
According to the expert, raising fares without addressing Ukrzaliznytsia’s other issues could worsen the situation, as some customers will simply stop using rail services.
In Search of a Fair Solution
Debts, unprofitable passenger transport, rising expenses for salaries and electricity, and a decline in freight volumes—all of this indicates that an increase in freight tariffs and state support for Ukrzaliznytsia’s passenger transport in 2026 are inevitable. This is the conclusion reached by Iryna Kosse, a leading research fellow at the Institute for Economic Research.
If so, what should such a decision look like? According to Iryna Kosse, the increase in freight rail transport tariffs must be sufficient to eliminate the risk of transport operations grinding to a halt in 2026, and this must be done in a predictable and differentiated manner.
“If tariff indexation is constantly postponed, we will either face a major one-time shock, as was the case in 2022, or even greater losses for Ukrzaliznytsia. According to the company’s own data, the planned indexation—as a reminder, initially 27% and then an additional 11%—will only partially offset accumulated inflation and producer price increases, as the producer price index has already risen by 79% since the last tariff revision. Accordingly, the indexation must at least keep pace with accumulated costs and inflation. Or the state must cover the difference. And Ukrzaliznytsia is hoping for state funding for passenger transport,” the expert notes.
As for a differentiated approach, this primarily involves taking into account the specific characteristics of different sectors when setting fares. For many, this is synonymous with fairness.
During a recent discussion on the LB.talks platform, Ukraine’s Minister of Economy, Environment, and Agriculture Oleksiy Sobolev supported this approach, emphasizing that changes to Ukrzaliznytsia’s fares should be approached with caution and scrutiny, since for some sectors, the burden of a tariff increase—due to the current tariff system—is nearly twice as high as for others.
“For ore and agricultural products, the tariff increase will add 600 hryvnias per ton. For crushed stone, it will be, I don’t know, 300 hryvnias. Based on the principle of fairness, why should the agricultural and mining sectors subsidize builders?” the head of the Ministry of Economy noted at the time.
In his view, costs for Ukrzaliznytsia should be distributed fairly among sectors. And those same farmers are speaking out in favor of fairly set tariffs. Says Denys Marchuk, deputy head of the All-Ukrainian Agrarian Council.
“There are different classes, but the agricultural transport class is already very expensive. They now want to raise rates by 27%, then by 11% in six months, for a total of 38%. And this is despite the fact that farmers pay perhaps the most. We say: if you want to balance Ukrzaliznytsia’s financial capacity and efficiency, then raise the rates for those classes that pay significantly less than market prices. We need to address all of this,” the expert notes.
Ukrzaliznytsia has expressed a willingness to discuss how to redistribute the planned fare increase among fare classes or to unify them. Although, for example, there are nuances regarding unification: according to Ukrzaliznytsia, unification should not mean a reduction in the fare, but rather raising it to the highest class.
The company’s CEO, Oleksandr Pertsovskyi, explained it this way:
“There is the highest class—fuel transporters; the middle class—mainly agriculture; and the lowest class—metallurgy, coal, and so on. When it comes to unification, no one is going to lower prices, because various authorities would come after us for that. Therefore, we can only raise them to the highest class.”
Given that there is no confirmation of the new tariffs at the ministerial level, an agreement has not yet been reached. Both Ukrzaliznytsia and the business community are seeking a fair compromise. They are also awaiting a systemic reform of the tariff-setting process, which is to be developed by the Ministry of Community and Territorial Development with the involvement of relevant associations.
Author: Serhiy Vasylovych
